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The Warsaw Voice » Real Estate » October 8, 2008
The Real Estate Voice
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Stable Demand for Apartments
October 8, 2008   
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Waldemar Mierzejewski, chairman of Finamo, a Polish financial consultancy company, talks to Magdalena Fabijańczuk about the mortgage market here.

Finamo entered the market in April and developed its business amid financial turmoil around the world. How difficult has it been for your company to work at a time like this?
Contrary to appearances, this was a very good moment for entering the market. For some time, the Polish loan market has been growing at a rate of 30 to 50 percent annually depending on the type of loans. Such rapid growth is rare in other sectors of the economy. Besides, as in Western Europe, the Polish market is moving toward independent distribution, and this trend will keep strengthening. Today, independent financial consultants hold some 20-25 percent of Poland's financial product market. In Western Europe, the figure is 50 percent on average.

What were your plans for the first six months and did you manage to carry them out?
When Finamo was entering the market in April, we announced that we would open 40 to 50 branches in major Polish cities by the year's end. Today, we already have 30 branches, which means we have built the third biggest financial consultancy network in the country.

Why did Finamo decide to set up a large number of branches at a time when many financial-sector companies were moving away from this method in a bid to save money?
Poland is still a country where relatively few people use bank services. Many Poles have no bank account and do not take out loans. One measure of the market's saturation in this respect is the relation between a specific type of loans, such as mortgage loans, and the country's gross domestic product. In Poland, the mortgage-to-GDP ratio is 12 percent, compared with some 50 percent in Western Europe and 75 percent in the United States. These figures clearly show that the Polish market has great potential for further growth.

One of the reasons for this is the insufficient supply and availability of financial products. In Poland, there is one bank branch per nearly 4,000 residents, while in other countries in Europe, there is one branch per 2,000-2,500 residents. This is true of both Western Europe and the countries with which Poland is most often compared, such as the Czech Republic, Slovakia and Hungary.

How is the Polish mortgage market doing at the moment?
The Polish mortgage market is in good shape. This should be clearly separated from what is happening on the investment market, where customers have been much more cautious recently. Today there are no signs that the U.S. financial crisis may have an impact on the credit behavior of Polish consumers. First of all, people in Poland are earning more money nowadays, and this whets their appetite for a better life and consumption. Moreover, higher incomes give them a higher credit rating.

Poland's Financial Supervision Commission wants to introduce tighter loan granting criteria. Do you think limitations are necessary in this area-considering that many banks used to grant mortgage loans without requiring any downpayments?
Two years ago, apartments in Poland cost zl.5,000 per square meter on average. A year later, the price was zl.8,000, and by now it has gone up to zl.10,000. This means that a mortgage loan granted two years ago was not at all too risky for the bank even if it exceeded the value of the property at the time. Today, we no longer expect the residential prices to grow so fast, and they may even fall in some segments of the market. As a result, lending funds accounting for 100 or more percent of the value of a property is no longer considered to be safe, which means that this area of the market may indeed require regulatory decisions from the KNF.

Don't you think that Polish banks should modify their lending policies regardless of official recommendations?
Today the banks are less willing to grant risky loans with lower profit margins, but this chiefly results from tighter liquidity management policies and the optimum use of deposits, which are becoming a rare resource today. As I mentioned before, Poles are becoming more inclined to consume, and are saving less. That is why banks have less money to lend even though they run aggressive advertising campaigns to encourage people to make deposits. Last year, for the first time in the history of Poland's banking system since the fall of communism in 1989, the value of retail loans exceeded the value of retail deposits.

Will the demand for apartments decrease now that loans are more difficult to obtain?
So far, no more than 20 percent of the banks in Poland have pursued very liberal lending policies, especially when it comes to calculating clients' credit ratings. These market players will certainly feel the changes. But most banks have remained very conservative in this area, maintaining tight lending policies, so nothing will change for them in this area. Also, demand for apartments will not change in the long run. It is clear that Poles need apartments because there is a shortage of residential space in the country.

Wherever there are clients interested in buying apartments and banks willing to lend them money, someone will surely come up with an idea on how this should be done. Besides, there are some 20 banks on the Polish market that aspire to play a major role here. And that means that some of them are ready to take bigger risks.

How will the latest developments on the financial market influence apartment prices?
There will probably be changes resulting from banks' tighter loan policy concerning developers rather than individual clients. Two or three years ago the popular belief was that the developers' business was relatively easy and that it guaranteed high profit margins and good access to financing. Many small and medium-sized companies decided to enter this market. They financed their projects with loans. Today, banks have become very strict and demand timely repayments from developers. That may result in greater pressure to sell apartments, especially in the case of smaller developers. This may lead to a certain decrease in the prices of new apartments, particularly in less attractive locations.
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